There is an information tradeoff. Imagine if criminals transacted only in $10,000 notes. It would be reasonably easy for intelligence agencies to sneak a traceable note to probe criminal networks. This would be close to impossible with a $20 note (not the least because this is a high velocity note used by normal people).

Citing the high use of $100 among criminals doesn’t mean much. Of course criminals use the lightest / most compact / highest denomination currency at their disposal. Therefore suggestions along the lines of “n% of criminal activity is transacted in $100 bills” mean little because if we got rid of the $100 and managed to avoid the problems noted in point (1) it would be the case that “n% of criminal activity is transacted in $20 bills”.

I found this information on premia interesting, note the premia serve as an implicit tax for trading in $100 bills, though I wonder who exactly reaps that surplus?:

Finally, Ashok tells us this:

Would we not be hurting innocent people in oppressive regimes? Aren’t there autocracies in Africa and Eastern Europe that use HDN [high denomination] dollars as a means of trade in otherwise embargoed necessities?

Leave those $100 alone, There are a lot of things that criminals use that law abiding citizens also use : guns,cars planes, lawyers, etc..We already have the abusive asset forfeiture laws.
It’s government oppression, next step cash will be outlawed.

I have played poker for several years, where bets and payouts are routinely conducted using $100 bills. It’s hard for me to imagine using $20s to pay for things costing in the thousands. Generally $100s are used in low-trust environments where people scrutinize the bills for counterfeits and count the payment in public, multiple times. It would be extremely time-consuming to do that with $20s unless you had a counting machine, which is not something you generally want to be carrying around.

To put this in concrete terms, a packet of 100 bills is comparable in profile to a thick wallet filled with cards. So it’s pretty easy to walk around with $10k in $100s in your pocket — it’s like having a wallet.

Now imagine walking around with five wallets, to represent that $10k in 20s. It’s doable, I suppose, but it would be uncomfortable and bulky. The difference in portability is not trivial.

Would Canadian gold coins be a possibility? They start at 1/20 ounce, which is what? About $75? That’s a very small coin. Not much risk of counterfeit coins, and wouldn’t it be much more fun to gamble with gold coins?

There’s no need for a “digital signature,” you can just track the serial numbers.

I kind of assume that banks track large-denomination notes by serial number every time they go into or out of the bank. This would be impossible 20 years ago but trivial today. Unless there is some law or strong cultural force within banks resisting it, it’s the kind of thing regulators would insist upon.

Banning the $100 bill would effectively end US$ as the “reserve” currency in hands of people in non-1st world. Clearly Summers can not even imagine how life looks like in the non-developed world.

In a system where you can not trust banking you keep your life savings in foreign currency of a trusted country. It has to be hidden and is utilized in high-value transactions (like buying a car or piece of land). Having to use $20 bills would end the use-case. (not to mention the logistical problem of exchanging and supplying all those $20’s). The US$100’s would by necessity have to be replaced by other high denomination bills, be it Euro’s or Yen or RMB or Swiss Franks. A large part of the $750B would be (permanently) exchanged over some period and float back to the US. This would not be inconsequential, for exchange rate, currency and country status.

In Vietnam, I went to a jewelry store/money changer that charged me a very small percentage discount for trying to exchange a 100 dollar bill that was more creased than the lady at the counter would have liked. Generally, new, crisp (100) dollar bills do hold a sort of premium in that country. When giving gifts, you would never give old tattered or even slightly worn bills.

It’s a premium not a penalty. You get more, not less, for your money if you change a $100 bill for local currency. Here is an example from the popular Thai company “Superrich” that operates currency exchange kiosks in the country. Right now, a $100 bill will get you 3,562 baht but 20 $5 bills will get you 3,537 baht. That’s a premium of 0.7%, not 3-5% so you and anon are right to call this source out for dubious data but the premium is still real.

What you see in the table on that page are outstanding orders. The text describes the location where the exchange would take place, if they would accept partial fulfillment, if there’s a fake bill detector on hand etc. Markets like this are also sometimes used to set up and rob people who bring too much currency to an untrusted counterparty w/o sufficient security.

The rate right now is 27.20/27.25 which is 0.2% of spread. And believe me, that rate is for $100 bills, there’s no space for discounting other denominations. The spread is usually slightly wider but still <1%. Most of USD cash exchanged is in 100 bills, so the rates assume that too. So in case of Ukraine I can confidently say the premium is exactly 0% (and always was).

I think Tyler is an intelligent person… but yeah he doesnt seem to care… This blog would benefit tremendously, if the number of posts would be reduced to one per day maximum. Maybe one with links and one like this one, but then with a much more careful writting and analyses. Why doesnt he do that???

The HPI that the St Louis Fed is reproducing in that graph is derived from the US Federal Housing Finance Agency. The latter agency indicates, in its FAQ with respect to how the index is calculated, the following:

Is the HPI adjusted for inflation?

No, the HPI is not adjusted for inflation. For inflation adjustments, one can use the Consumer Price Index “All Items Less Shelter” series. The Bureau of Labor Statistics’ price index series ID# CUUR0000SA0L2, for example, has tracked non-shelter consumer prices since the 1930s. That series and others can be downloaded at: http://data.bls.gov/cgi-bin/srgate.

Virtually no one doing large legal transactions these days does them in cash. If large transactions are done in cash, it is virtually certain that one or the other of the participants is up to something dodgy.

However, I would oppose moves to ban large denominations unless accompanied by extensive genuine sounding defenses about the importance of anonymous payment mechanisms, in terms of liberty and the potential of some future spy state to monitor every last economic transaction of every individual, which would allow them to create virtually complete profiles on preferences, making is altogether too easy to stick and carrot them at the individual level to the point of essentially brainwashing them. I.e., this should not be the slippery slope to a cashless society with a potential for universal monitoring of transactions, and only a very strong defense supportive of such concerns would mute such concerns.

An added bonus is that, while a reasonable exchange period could be made for people who legally hold large amounts of high denomination currency (6 months, with reasonable additional avenues for those who were overseas and could prove the legal origins of their cash?), it would virtually bankrupt many cartels, terrorist groups and tax evaders overnight.

Aside from nearly bankrupting all sorts of dodgy types, it would increase the detection risk for these very same groups while posing virtually zero cost on those who follow the law, given that large legal transactions are almost ubiquitously digital these days.

I would suggest that such a move should be accompanied by a temporary hike to human resources for organizations which specialize in detecting financial crimes such as money laundering, since the cartels et al. would presumably rush to do anything they could to launder this money rapidly before losing everything.

I was thinking exactly of used cars when the ban on c-notes was first being discussed. It would be a major pain in the ass to cart around 5 times as many 20’s when purchasing previously-owned vehicles.

If your are expressing a personal preference fine (although it says a lot about your economic background that you feel that way i.e. you have grown up incredibly privileged). But if you think that is a method that lower income people can adopt you are out of your mind. If I had adopted that mindset, I would not have been able to afford a half way decent car until I was in my mid to late twenties.

I personally have a very strong preference for cash (honestly, it’s all about paranoia of some sort of future state that will monitor even trivial transactions), but don’t like to do business with people who insist on it. The only exception is airlines tickets, since cash is no longer an option. I’m not sure how my position is suggestive of any privileged background – perhaps some sort of cultural difference between where you live and anywhere I’m familiar with …

“Virtually no one doing large legal transactions these days does them in cash IN THE US.”

The majority of $100 bills are outside of the USA. It is a phenomenal deal for us: we print some paper, export it and get real goods in return, never to see those bills back. If we invalidate those papers, they will flood back to us.

I can not emphasize enough the importance of those bills in developing economies. Every time a transaction happens, the trade is supported by the strength and good faith into the USA backing those bills. Remove that and it is consequential.

In the dozens of countries I’ve been to, the only time I’ve ever seen a $100 bill was in a bank in China, when I was trying to buy dollars to transfer digitally, and a friend of the manager approached me to sell cash so I could undercut the maximum daily exchange amount ($500 a day at the time).

I’m not doubting that the USD is an important means of exchange in many places. But for most transactions, why would having a $50 or $20 max matter? People doing legitimate transactions aren’t carrying around literally trucks full of cash, for the most part.

Large denomination bills are the default long term value storage. They are not daily transaction tools. I presume that’s why you have not seen them. If I would need transaction money, I would “break” a 100 — US Dollar or Euro in some places.

I have observed land transactions in cash and vehicles sold/bought with $100’s. When emigrants go visit family, they bring large denomination bills. This is the reality for the working/middle class in large parts of the world where local banks and governments are not to be trusted.

You must be a yuppie. At the very least you are a city slicker. In the country lots of large transactions are done via cash. Nobody is going to trust a check from a stranger to buy a tractor, load of logs, or any other larger interpersonal transaction that is routinely done out in the sticks. Nor are they using electronic transfer systems (I transfer money electronically all the time, but I am a minority in that regards. Most people around me don’t even know how to check their bank accounts electronically. America as a whole is not as advanced as you seem to think.)

Rural areas skew older. Rural areas often have no broadband. (Where I live, I technically have it but it only barely qualifies for the broadband title legally speaking). Combined those two facts and often people have not ability/interest in learning how to use the computer and may not even have one. Heck, I still work with a number of people who don’t even have a smart phone. Another fact about rural areas is that there are a huge number of part-time small business. These business are legal (in the sense that they report income to the government) but they are run on a strictly pen and paper/cash system.

For example, I know of one feed store that I used to go to that only took cash, only issued hand written receipts, and collected the appropriate sales tax. Walking into that store was like walking into something from the fifties (and that is about the time the owner dated from as well). The further you go out into the boonies, the more likely you are to find things like that. And yes, you can and will wind up spending big money at a feed store if you are a farmer.

Another issue is the large number of hobby farms that legitimate never make profit and are only run because the people involved want to keep animals and defray the cost of doing so.

So basically there are 3 legit reasons why rural business tend to use cash. Poverty, age/resistance to technological change (Amish are moving into my area), and transaction cost for doing things in non-cash manner if you are small. If you have a small business refurbishing tractors out in your barn, you are not going to pay for a credit card system when you only do 3 or 4 big jobs in a year. And checks are major headache for any small business that deals with poor costumers.

If the goal is a cashless society, don’t just eliminate C-notes, get rid of all of them, make the state economy completely pixel based. Then normal people can originate their own form of money and we’ll be able to begin the move away from the monster state.

See Glenn H. Reynolds in USA Today. ” Governments want to get rid of cash for two reasons. First, it gives them more control over citizens: They justify it in the name of fighting terrorists and organized crime, but what they really care about is making sure that nobody escapes their scrutiny, for purposes of taxes, regulation and political finagling. Second, if you’re stuck putting your money in a bank, they can force you to spend it (and thus “stimulate” the economy) by subjecting you to negative interest rates, in which money that just sits in the bank shrinks away, providing an incentive to spend.”

The FX premium on $100 bills is real but it is a premium, not a spread, so it doesn’t function as a “transaction tax” at all. Currency dealers abroad are willing to pay a premium for a $100 because there are plenty of people willing to pay a premium — including their own depository bank — to take it off their hands. $100 bills are the money equivalent of the English language — they are more likely to be accepted and recognized around the world than anything else.

I think a useful take-away from Ashok Rao’s article is that people in “certain” countries think too much or allow themselves to be lectured too much about how what they want to do with their country will impact people in other places. The world would be better if there were less of that going on at every trivial level. Still, I disagree with the elimination of hundred dollar bills or 500 euro bills.

One set of winners from banning $100 bills would be the banks and credit card companies that charge 3% or more for foreign transactions. In some countries, local banks are slapping on their own fees which can be $5 or more for withdrawals using foreign cards on top of whatever the customer’s own bank will charge. It is a bit ridiculous for this to be true in the year 2016 but many people can save money but bringing stacks of U.S. dollars on foreign trips and changing them the old fashioned way instead of relying on 1990s technology like ATM cards and credit cards. The spread and commission from changing money is almost always less than 3% but it will be much less convenient to travel with a stack of $20s than with $100s.

I can’t imagine enjoying a holiday while walking around with thousands of dollars in my pocket or left in my hotel room. I’d much rather pay a couple percent premium for ATM fees (I pay 1.9% for foreign transactions, about as good or better than I expect at the exchange booth, plus time savings because foreign exchange operations take a ridiculous amount of paperwork in many countries), and have the peace of mind that comes with knowing that if you get mugged or your hotel room gets robbed that you can’t lost that much.

Consider that if the size of your stash becomes known, you become target number 1 for unscrupulous types. You might reason that you can just keep the size of your stash hidden. But, having dropped just 2 or 3 $100 bills, it becomes very easy to guess that the whole rest of your holiday is going to be paid like that, and that you must have some vast stack of cash either on your person or in your hotel room.

Also, many banks have premium accounts which offer free international transactions, and waive the monthly fee for maintaining a balance. TD Bank, for example, has such an account with a $30 monthly fee, waived for monthly balances above $5000. At an interest rate of virtually 0% and assuming that this is a reasonable buffer for short term emergencies anyways, it’s already paid for itself if you have just a couple international transactions a year. All you face in addition to that is the foreign exchange charge, and as I mentioned you’ll save lots of time in not having to exchange money and you probably won’t get much better of a rate at the exchange booth.

Finally, $100 bills are actually hard to exchange in a lot of places because local staff are not confident enough in spotting counterfeits for such large denominations, which can be equal to several month’s salary in many places in the world.

I routinely do this. Although I live not holiday in Thailand, I bring back thousands in cash 100s. This allows me to avoid wire fees and gives much better fx xch and the 100s being premium. Not only this but if my wife and I wish to travel in addl countries I have access to USD both to xch on arrival, as needed or in emergency.

From my backpacking days, many countries largest denominations are small in comparison, if you are traveling about you don’t want a moneybelt full small, dirty/torn, 3rd world currency.

There are now tons of fees associated with using cards to access your money abroad including a usually horrible rate.

Finally, while these countries will be forced to change, many foreign govts require payments in USD. Moreover, many economies run on usd. Cambodia gas had amazing success curtailing both inflation and corruption on a dollar economy.

In the end, it’s all about control. The mark of the best will not be etched on your hand, it’s most likely in your pocket right now and it’s a plastic ATM/debit/credit card.

Is this more about the dollar serving as a storage of value than HDNs facilitating crime? Storage of value is one function of money, but maybe Summers’ concern is that the dollar serves that function too well (at the expense of the other two main functions of money). Is hoarding of money (dollars) causing a declining velocity of money, and acting as a drag on the economy? In an era of zero and negative interest rates, why not keep HDNs in a big box buried in the back yard (or in a safe deposit box at the bank).

The elites confiscated we the people’s monetary gold in 1933. Now they want to take out $100 from currency in circulation. What’s the true motive? Is it to curtail drug traffickers in Argentina or we the people? I’m not a criminal. Go after criminals, not people.

Plus, given the $19 trillion national debt and trillions in unfunded transfer payments, the huge debtor, US gov, needs inflation. Will inflation be run through created reserves, bank checking accounts and debit cards, without large bills? I mean when a loaf of bread costs $200 . . .

Nathan W says:
“Virtually no one doing large legal transactions these days does them in cash.”

Not true. In California and Colorado, the state legalized pot business is booming. However, due to banking restrictions, this high volume pot business is a cash business. Without $100 bills, dealers will need fleets of armored wheelbarrows.

Good point. But it is precisely for the fact that the level of government that makes decisions about banking, finance and monetary regulations, etc., still technically considers this to be illicit activity. Where anyone got the notion that it is the business of government to regulate or criminalize the decision to put natural products in my body is beyond me, but this does not change the fact that the original statement is generally upheld.

If the name of the game is cracking down on crime, wouldn’t we want the criminals using USD over EUR or CHF? The U.S. government has made it clear that anybody in the world who commits a crime that even remotely touches the U.S. banking system is fair game for them to go after. The FIFA scandal comes to mind as an example. I’m not saying I approve of the government taking on that role, but if they’re going to do it, it’s easier if the criminals are transacting in USD rather than $1000 CHF bills.

“Transactions in cash do not touch the banking system” until holders of large sums of currency make purchases with legitimate businesses. Assume that Tom Collins brings a suitcase with $100,000 to the Ford dealer to buy a new tricked-out, crew cab pick-up truck. The auto dealer’s finance person will ask for information (name, address, SSN, source, etc.) from Mr. Collins to fill out a US “Currency Transaction Report” (CTR) which is required for all cash transactions $10,000 and over. When the auto dealer deposits the cash at its bank, the bank will need to either obtain a CTR or see the original CTR.

The regs allow for banks to keep lists of cash businesses which they have vetted that do not need CTR’s for most large currency transactions.

The bad guys constantly attempt to beat reporting requirements by “structuring” cash transactions: making numerous below $10,000 transactions into and out of numerous surreptitious accounts. The bank regulators are smart to this and banks are required to have systems to detect structuring.

The bad guys also try to “turn” bank employees to aid and abet as co-conspirators in money laundering crimes.

I was recently translating a large number of consulting reports (via middlemen via middlemen via middlemen …) for one of the largest banks in the world, and their efforts to comply with anti-money laundering and anti-terrorist financing regulations. Large number of below-threshold cash transactions are now also flagged, or at least they should be. If they cannot prove credible efforts in this regard, they may have difficulty maintaining access to the US market.

For the sake of brevity I didn’t want to belabor the point, but if you’re using USD cash you’re still touching the tip of the U.S. financial system. Dollars are liabilities of the Fed, they make their way to the public via the banking system, and for many criminal enterprises they later have to be laundered back into that system somehow.

The bottom line is that it’s easier for the U.S. to go after people for money laundering and the like if they’re using USD, and the U.S. has a broader reach here. Switzerland needed our help as partners in going after FIFA, even though the case was largely about crimes that took place outside the U.S.

The regulations apply to USD values of cash transactions, and are not related to the actual choice of currency.

And since nearly every bank on the planet accepts USD (North Korea may be an exception), there is no reason to believe that US financial institutions will be in any better position to be involved in flagging suspect transactions for the fact that the laundering made use of USD at some stage. The influence of the US financial system lies in its ability to ban any financial institution from the US market if they fail to demonstrate credible efforts towards anti-laundering, not the fact of cash transactions being in USD.

@Rock Lobster – you don’t need to touch the US banking system for the Feds to go after you. For drugs, they have a doctrine, used in South American (see Netflix “Narcos” series, very accurate) that anybody who exports illegal drugs in any foreign country where the drugs end up in the USA may be extradited to the USA. And there’s even a Sup. Ct. case, decided by Rehnquist, that said the DEA can kidnap a Mexican citizen and bring him to the USA for trial,and it’s legal (like the Israelis did with Nazi war criminals).

We’re already there. One theory behind the fall on crime rates is that it’s no longer profitable to rob people or even small stores, because the chance that they will have large amounts of cash for the heist is fairly small.

+1. I have a thread on this at the Gold Forum in Kitco under my name. I might end up linking this post by TC to it, but Askok’s post is just duplicate news I’ve already linked. Several countries, from Scandinavia and South Korea for example, as well as the USA, are looking into abolishing cash so they can (1) promote negative interest rates, and (2) “cut down on crime”. Of course, as ZeroHedge said, the government will claim (2) is the ‘real reason’ but in fact it’s (1).

“As Americans, we should have a presumption of innocence in our daily lives. What business is it of government whether we want to carry $20 bills or $100 bills? And think about the implications of these laws. What if the government said we need to ban cars, or put government-monitored homing devices in all vehicles, because bank robbers occasionally use automobiles as getaway vehicles? In this case, there is a theoretical benefit to the policy, just like there is a somewhat plausible case for anti-money laundering laws, but presumably we would reject such a policy as too intrusive.

Anti-money laundering laws are a classic case of bad policy leading to more bad policy. The government passes drug laws that create huge profits for criminals. But rather than getting rid of victimless crimes, the government imposes policies that make life more difficult and costly for everyone else.”

I have this half-baked theory that improved surveillance (partly thanks to the war on terror, but mostly driven by technology favoring it) is increasing the power of the people doing the surveillance (police and intelligence agencies) in society. The result is that this kind of proposal, something the police and spies have probably wished for for a long time, is more likely to be adopted despite any resistance normal citizens might put up. Over time, I expect to see the US become increasingly friendly to the sorts of things that make life easier for the NSA and FBI, because they’re increasingly able to know the dirt on powerful decisionmakers, and those decisonmakers know it. (This can work even if both agencies are scrupulous about not spying on anyone they shouldn’t be spying on–the guilty flee where no one pursueth and all that.)